Aeeris Limited (AER) is a geospatial data business. The Company’s Early Warning Network system and proprietary GNIS technology platform ingests and maps vast amounts of live data from multiple sources regarding severe weather, fire, traffic, and other geospatial hazards.
Equipped with this capability, it provides all-hazards (natural and man-made) alerting and forecasting services for government departments, commercial entities, and Australian people – to prevent injury, loss of life, property loss and disruption to business. Monitoring occurs in real-time, and risks are communicated instantly over multiple channels to customers.
Colloquially, have you recently had hail forecast in your area and received an SMS from your insurance provider? This is the very likely the result of a proactive early warning system. Natural disasters are critical for AER, but there are other areas of concern it addresses too – specifically any client that has a need to mitigate the financial impact of adverse events, geospatial hazards, personal injury, etc.
Thesis
- AER recently became profitable, an impressive feat for a company currently trading at around 13-14c. They are well positioned to re-invest profits without having to dilute shareholders. AER’s new climate product (more on this below) is proof of this. The company’s ROE (around 40%) is excellent and increases my confidence that they will continue to use cash well. The thesis is central to AER investing cash inflows back into the business (which they have done effectively to date).
- No debt and healthy balance sheet.
- Founder led with 31% ownership. The CEO also recently purchased additional shares at 12/13c. Good to see skin in the game and continued CEO confidence around current share price levels.
- Sticky customers with almost no churn. The ability of the company to continue its growth through CV19 and not lose key customers—many of which were obviously hit hard financially— demonstrates the criticality of AER’s services.
- Industry tailwinds:
- General preference to outsource alert/forecasting services: It is resource intensive to provide a real-time warning service. Hypothetically speaking, let’s assume you want to develop this function in-house because for whatever reason your company has a need for it. You will probably require staff to work around the clock (24/7), skills that might differ considerably from your current staff (e.g., insurance vs monitoring/analysis) and sufficient technology to ensure the proactive warning service is effective. This would be complex and time-consuming to implement. Consequently, I think outsourcing this element of a business makes sense, creating demand for AER’s technology and services.
- Warning services are increasingly becoming ‘critical’: Many companies, particularly those in the insurance game, are increasingly shifting towards investing in proactive monitoring/notification. I was in Canberra a few years ago when the city experienced a serious hailstorm. Most cars that were not under cover were either written off or suffered broken windows. My insurance company sent me a ‘warning’ message an hour before the storm hit. Simple, but effective. Without having inside knowledge of insurance companies, my guess is that was an incredible ‘return on investment’ by having that proactive warning system in place -saving insurance companies thousands of dollars in claims/repairs by proactively warning their customers prior to the weather event.
- Australia and surrounding regions are susceptible to natural disasters: Bushfires, flooding, earthquakes, tropical weather systems - these can and do have significant impacts on business and government, for a variety of reasons. This obviously is not new, but if AER continue to offer market-leading warning services I believe there will be continued interest in their services.
- Climate change requirements: The successful litigation against a superannuation company (REST) – for failing to disclose climate risk within its investments – suggests that businesses need to adjust to the recent momentum and requirements to disclose necessary information. AER recently launched its ‘Climate Risk Platform’, which potentially increases the company’s addressable market substantially.
Monitor:
- I want to keep seeing meaningful increases in ARR to demonstrate that the company is continuing to expand/grow. Customer receipts decreased slightly between Q3 and Q4 reporting in 2021 – monitor this, ideally, I want to see gradual growth over HY and FY periods. At the same time, slow quarters are expected.
- Keep an eye on AER’s ability to target the climate change disclosure market, particularly given the company’s heavy investment into this product.
- I don’t think the biggest threat to AER is other companies, I think it’s the Australian Government. The last five years has seen significant investment in how the government and its departments plan, respond to and coordinate natural disasters. While I tend to take the cynical view that governments do not use capital or develop innovative software anywhere near as effectively as the private sector, this is still a risk for AER – with an increasing focus on all-hazards management and coordination of information. Although unlikely, keep a close eye on any government-led initiatives in this area.
DISC: Not held (yet), but high on my watchlist. I am still looking to prioritise other holdings at the moment but will keep a close eye on AER.
